Invesco Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Invesco is a global investment manager serving retail and institutional clients. Unless noted, financial amounts are in U.S. dollars; financial statements are unaudited.
Key financial and operating metrics
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Operating revenue (GAAP) | $1,475.3 million | $1,418.2 million; up 4.0% |
| Operating income (GAAP) and margin | $213.1 million; 14.4% | $209.5 million; 14.8% |
| Net income attributable to Invesco | $141.5 million | $145.0 million |
| Diluted EPS | $0.31 | $0.32 |
| Net revenue (non-GAAP) | $1,053.2 million | $1,075.9 million; down 2.1% |
| Adjusted operating income and margin (non-GAAP) | $296.5 million; 28.2% | $326.9 million; 30.4% |
| Adjusted net income / diluted EPS (non-GAAP) | $148.4 million / $0.33 | $173.4 million / $0.38 |
| Ending AUM | $1,662.7 billion | $1,483.0 billion a year earlier; up 12% |
| Net long-term flows | $6.3 billion | $2.9 billion |
| Cash and cash equivalents, excluding CIP cash | $895.7 million | $1,469.2 million at December 31, 2023 |
| Operating cash flow (GAAP / adjusted to exclude CIP) | $(54.4) million / $(106.7) million | $(98.9) million / $(119.5) million |
| Debt, excluding CIP debt | $1,257.5 million | $1,489.5 million at December 31, 2023 |
| Available liquidity | $2,528.1 million | $895.7 million cash plus $1,632.4 million available revolver capacity |
Q1 GAAP income before tax was $282.9 million, versus $235.7 million a year earlier; net income was $214.2 million versus $165.8 million. The increase in consolidated net income did not translate into higher income attributable to Invesco, in part because of the period’s allocation to noncontrolling interests. GAAP results include consolidated investment products (CIP); CIP assets and debt generally are not available to, or recourse obligations of, Invesco. Adjusted measures are non-GAAP and should not be treated as substitutes for GAAP results.
Material changes and drivers
- Average AUM rose to $1,613.0 billion from $1,463.0 billion, supporting higher investment management and service/distribution fees. However, the shift toward lower-fee passive products weighed on revenue yield: net revenue yield excluding performance fees and QQQ declined to 30.7 bps from 32.7 bps.
- Total net flows were $16.5 billion, including $6.3 billion in net long-term flows. Passive long-term flows were positive $13.4 billion, while active long-term flows were negative $7.1 billion. Market gains added $68.0 billion to AUM; foreign exchange reduced it by $8.2 billion.
- Operating expenses increased 4.4% to $1,262.2 million. Third-party distribution, service and advisory expense rose $48.9 million, mainly alongside higher fund-related costs and AUM. General and administrative expense increased $33.5 million, primarily because Q1 2023 included $20.0 million in insurance recoveries and $9.8 million in indirect tax refunds. Q1 2024 had no transaction, integration and restructuring expense, compared with $41.6 million in Q1 2023.
- Other income included $30.5 million of net CIP income, compared with a $17.9 million CIP expense a year earlier, and $35.9 million of other net gains. Equity-method earnings fell to $6.9 million from $26.1 million, reflecting real estate investment losses and lower IGW earnings.
- Cash declined during the quarter, including the $600 million senior-note repayment and timing-related working-capital outflows, including annual compensation payments. Excluding CIP, operating cash flow was negative $106.7 million.
Outlook, management commentary and risks
- Management described economic conditions as relatively resilient, with rising equity markets but generally weak fixed-income markets. It cited organic inflows alongside a mix shift toward lower-fee offerings that constrained revenue growth, and said Invesco was positioned to compete through scale, performance and investment capabilities. No quantified earnings, revenue or AUM guidance is provided in the filing.
- Management said it expects to maintain a balance on its credit agreement until the second half of 2024, citing the senior-note repayment and short-term operating cash needs. The company stated that its capital structure and liquidity sources should be sufficient for anticipated needs.
- Invesco reported compliance with credit covenants: leverage ratio 0.54:1.00 against a maximum of 3.25:1.00, and interest coverage 20.76:1.00 against a minimum of 4.00:1.00. Weighted average debt cost was 4.90%. Credit ratings were BBB+/Stable, A3/Stable and A/Stable from S&P, Moody’s and Fitch, respectively.
- Key risks include market-driven AUM and fee changes, underperformance and client outflows, shifts to lower-yield products, interest-rate and foreign-exchange movements, inflation-related costs, and limits on moving cash among jurisdictions. The filing notes that prolonged adverse markets or a significant stock-price decline could lead to goodwill or intangible-asset impairment.
- Undrawn co-investment commitments were $664.6 million. Maximum future payments under fund-related equity commitments and guarantees were $274.6 million and $30.0 million, respectively; management considered the likelihood of funding remote. The company also disclosed cooperation with an SEC investigation concerning investment advisers’ retention of certain electronic business communications; a potential loss range could not be reasonably estimated. Management said adequate accruals had been made for estimable probable matters and did not expect their resolution to materially affect the business, revenue, net income or liquidity.
- The board declared a common dividend of $0.205 per share, up from $0.20, payable June 4, 2024. Preferred dividends of $14.75 per share were also declared. The filing reported no significant change in risk factors from the 2023 Form 10-K.
Important facts for investors to verify
- Whether continued growth in AUM and inflows can offset lower fee yields and active long-term outflows.
- The sustainability and composition of reported and adjusted earnings, particularly CIP, investment gains, noncontrolling-interest allocations and non-GAAP adjustments.
- Cash conversion and working-capital trends, including the expected duration of the credit-agreement balance and the timing of debt repayment or refinancing.
- Developments in the SEC electronic-communications investigation, other legal or regulatory matters, and the company’s contingent commitments.
- The effect of market performance, product mix, foreign exchange and investment performance on AUM, margins and potential goodwill or intangible-asset impairment.